The Clinton Administration originally proposed privatization of the helium reserve, estimating a $27 million reduction in outlays over FY96-2000. Sale of the reserve was also an assumption in Congress's Fiscal Year 1996 Budget Resolution. The Senate Committee on Energy and Natural Resources held a hearing on pending helium legislation in July of 1995. A summary is available at this site. A similar hearing was held earlier by the House Committee on Resources.
Two of the bills before the Senate were nearly identical: S.45, introduced by Senator Feingold (D-WI), and S. 738, introduced by Senator Thomas (R-WY). Both bills are also similar to H.R. 2906, introduced by Rep. Christopher Cox (R-CA). The final enacted legislation, H.R. 4168, also introduced by Cox, represents a compromise between Congress and the Administration. The helium industry enthusiastically supported S. 45 and S. 738 but gave only lukewarm support to the Administration proposal, S. 898, calling it "a step in the right direction." S. 45 and S. 738 were both opposed by the Oil, Chemical & Atomic Workers union, representing approximately 200 workers at the Federal helium refining facility near Amarillo, Texas. The American Physical Society issued a policy statement expressing concern about selling off the helium stockpile. A brief description of helium reform is followed by a more detailed discussion of the helium program and legislation.
Helium is a byproduct of natural gas production and, unless extracted, is lost to the atmosphere when the gas is burned . Although we no longer require helium for a fleet of dirigibles as we did when the original act was passed in 1925, the federal program now supplies helium to NASA for purging and pressurizing rocket engines (in particular, the space shuttle), and to both the Departments of Defense and Energy for various uses. Commercial uses of helium include magnetic resonance imaging (MRI) medical equipment and as a refrigerant to promote superconductivity in metals. A table showing a 1991 survey of the domestic helium market as well as the size of the world market is attached.
The federal helium program has spawned a successful private helium industry which now supplies 90% of the commercial market for refined helium. The emergence of a healthy private sector has led to the current calls for privatizing the federal program. All of the current reform proposals call for selling off federal helium refining operations, charging fair-market value for short-term storage of helium in the federal reserves and drastically reducing the reserve through gradual stockpile sales. The Administration proposal differs from S. 45 and S. 738 in the timetable over which these changes would occur. S. 45 and S. 738 require that production cease and the facilities be sold within one year of enactment, whereas the Administration proposal would have the process take place over several years. The federal market dwarfs the commercial market, therefore the Administration has proposed a more gradual transition to minimize the disruption to federal customers. With respect to stockpile sales, the Administration would begin gradual sales next year and continue though 2020. The other bills would sell off all but a two-year's supply starting in 2005 and concluding in 2015. In all cases, the sales would take place in a manner that would not cause "undue disruption" to the helium market.
The fundamental difference between the Administration proposal, S. 898, and the other two Senate bills concerns the helium debt. The debt currently totals $1.4 billion -- principle and interest from loans extended by the Treasury to the Department of the Interior. These loans, which were authorized in 1960, supported purchases of crude helium in order to create a stockpile without requiring direct appropriations. The Administration proposal cancels the debt outright, whereas S. 45 and S. 738 call for its eventual repayment. The GAO, OMB, and DOI Inspector General all agree that because the debt is intragovernmental it could be forgiven with no impact on the budget deficit or PAYGO rules. The helium industry argues that forgiving the debt would give managers of the reserve little incentive to properly conserve the remaining helium. The Administration asserts that retaining the debt will only serve to maintain crude helium prices at an inflated level, and is doubtful that any of the mechanisms for selling the stockpile would ever pay off the debt.
Whereas the private helium industry is eager to take over the federal government's role in refining helium (which is a non-renewable by-product of gas field development), it wants the crude helium reserve to remain in federal hands, because any large sale of crude helium from the reserve could result in a market price decrease. The industry also opposes Administration proposals to forgive the helium debt, because it helps to maintain the price of helium. Industry-supported bills have been introduced in both the House (H.R. 873) and Senate (S. 45 and S. 738) this Congress that are similar to one that unanimously passed the House Resources Committee last Congress. These bills will reduce the federal bureaucracy, but it is not at all clear that they will save the government any money or reduce the deficit. The President's earlier reinvention proposals, which were introduced in the Senate last year by Senator Johnston as part of S. 1637 but did not pass, would go much further in saving the government money. The President's current proposal represents an intermediate position. The three principal issues addressed by all these bills are: the helium debt, federal refining facilities, and helium storage and reserves.
Following the 1960 amendments to the Helium Act, an interagency agreement between the Departments of Interior and Treasury provided for a $252 million loan to pay for purchases of crude helium. These purchases were intended to ensure that the nation retained an adequate stockpile. The loan was to be paid back with interest in 25 years, a date that was extended 10 years to 1995, but sales of refined helium have not met expectations in part because of the program's successful development of a robust private industry, and the principal with interest now stands at $1.4 billion. Although this amount is often pointed to as proof that the federal helium program is a wasteful drain on government funds, revenues from the program actually exceed operating expenses by $10 million a year. More importantly, the GAO, OMB, and the DOI Inspector General all agree that because the loan was between federal agencies, it is a paper transaction which could be forgiven with no impact on the budget deficit -- in other words, it is funny money.
The USBM owns and operates several facilities in the vicinity of Amarillo, Texas: a helium extraction and purification plant and a helium cylinder and trailer-filling facility at Exell, Texas; a crude helium reservoir and a metering and maintenance station at Cliffside Field; and a 425-mile pipeline connecting the two. The operation employs around 200 workers, who are represented by the Oil, Chemical, and Atomic Workers International Union (OCAW). The OCAW along with the AFL-CIO support the President's earlier reinvention proposals but oppose privatization of the refining facilities. They have raised the concern by federal buyers, including NASA, that selling the facilities would result in higher prices and a disruption in service. There is also some question about the private sector's ability to provide ultrapure Helium 4, which is currently a unique service of the federal program. USBM sales of refined gaseous helium currently make up all of the federal market and about 10% of the commercial market. The other 90% of the commercial market is supplied by private industry, which received its start because of the original loan to buy crude helium for the strategic reserve. The private industry's dominance of this market is somewhat misleading, because the federal market represents 75% of the total market, dwarfing the commercial market for refined gaseous helium. On the other hand, private industry completely dominates the much larger market for refined liquid helium.
The current reserves are over 34,000 million cubic feet (MCF). Currently, the government uses 300 MCF/year and the total world market is 3,000 MCF/year. Assuming these levels of consumption, the reserve is enough to serve the government's needs for 100 years or the world's needs for 10 years. The federal reservoir at Cliffside Field, which is located beneath a salt dome, is also used by private industry for short-term storage of helium resulting from seasonal fluctuations in the market. Private industry pays fees, but they are well below the cost of the services provided, and all of the reform proposals include raising these fees to more equitable levels.
Legislation in the 103rd and 104th Congress In the 103rd Congress, Senator Johnston introduced S. 1637, which represented the Clinton Administration's Reinventing Government proposals for the Department of Interior. Title 1 concerns improving the Federal Helium Program. Section 101 of this title provides for efficiency improvements and fee changes in order to compensate fully for all costs incurred. It also provides that sales of helium from the reserve are not to cause "undue disruption of the usual markets" and are to be sold at prices "comparable to helium sold by private industry". Section 102 calls for cancelling the Fund's outstanding debt and conducting a study of how to improve the program's operations. This bill did not pass the Senate last year.
On the first day of the new Congress, Senator Feingold (D-WI) submitted S. 45, which requires the Secretary of Energy to sell "Federal real and personal property held in connection with activities carried out under the Helium Act" within one year of enactment. A virtually identical bill was passed unanimously last Congress by the House Resources Committee and has been reintroduced as H.R. 873. Senator Thomas recently introduced a very similar bill, S. 738. All of these bills are wholly supported by the helium industry. This act requires that the Secretary "shall cease producing, refining, and marketing refined helium and shall cease carrying out all other activities relating to helium" previously allowed by the Helium Act one year after the act goes into effect. In contrast, sales of the nation's stockpile of crude helium would not begin until the year 2005, and all but 600 million cubic feet (MCF) of the nation's stockpile of crude helium would then be sold off by 2015. The sale is conditional on a price evaluation clause requiring that the reserves be sold at or above the current market price (adjusted for inflation) in order to ensure that the present debt is paid. The Cliffside Field storage facility is to be maintained by USBM in order to store the remaining 600 MCF of reserves. The industry lobbyists argue that the helium debt should not be forgiven, because it would leave little incentive for managers of the reserve to properly conserve the remaining helium. This argument is questionable, since we already have an immense reserve, and the current legislation would severely limit the government's ability to sell refined helium and hence pay back the debt. Since the debt is purely on paper, there is no savings to the taxpayer.
The FY 1996 USBM budget assumes that Federal refining of helium would cease and the reserve of crude helium would be sold over a period of years, and it anticipates Presidentially proposed legislation, which was transmitted to Congress on April 28. The USBM's position is that the federal government will get out of the helium business but is concerned about the very brief timetable over which the Senate bills require the sale of its refining capabilities. The Administration proposal would cease refining within three years and sell the operations within two years after that. The USBM favors a longer timetable in order to assure that the disruption to Federal customers like NASA, who require extremely high purity, be minimized. In contrast, the USBM opposes the ban on near-term sales of crude helium contained in S. 45 and S. 738 and would instead opt for a standard similar to that found in last year's Johnston bill: that the sales are not to cause "undue disruption" of markets. The Administration proposal would commence selling the reserves in 1996 and continue until 2020. As with the Senate bills, these sales are to be conducted in a manner that would not cause undue disruption to the market but would take place at a price reflecting fair-market value. Citing the sales of defense-related stockpiles, they argue that such disruption can be avoided while still allowing some sales of the reserves. The USBM is also concerned that the debt on the helium reserve be retired (a provision in the Johnston bill as well) and that sales and services related to the helium program be made with the taxpayer's benefit in mind.
The Administration proposal would result in proceeds of approximately $47 million from the sale of refinery assets and crude helium in FY1996-2000. It includes a provision waiving the Balanced Budget Act in order to allow this asset sale to be counted as an offset to spending, since the Administration estimates that the bill would cost $23 million in reduced receipts. If that was done, then $24 million could be counted towards deficit reduction for FY1996-2000. The estimated costs will result as Federal agencies have to begin to purchase all their refined helium from commercial sources.
|Application||Volume (million cubic feet)||U.S. market share (percentage)||Estimated 1992-97 annual growth rate|
|Magnetic resonance imaging||440||20||7.3|
|Total U.S. Market||2188||100||5.5|
Total Worldwide Market = 3288 MCF (U.S. Consumption represented 68% of world market)
Source: Air Products Corporation and U.S. Bureau of Mines survey
Contributed by David Applegate, AGI Government Affairs
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Last updated January 2, 1997